Were private investigations performed for insurance companies subject to Florida sales tax?

Subject

Insurance Investigations and SIC Classification

Plain-English summary

The investigator did not have to collect Florida sales tax on investigations performed for insurance companies. The taxable statute covered detective and protection services in SIC 7381 and 7382. Insurance inspection and investigation services instead fell within SIC 6411.

The insurance carrier did not have to receive the bill directly. When another party was billed, however, the invoice had to name the insurance carrier so the insurance purpose could be established. Without that name, the Department said the service would be taxable.

The result generally did not extend to work for a business that merely chose to self-insure. Unless the arrangement was a formal self-insurance plan under section 624.031, the Department classified that work under taxable SIC 7381.

What this means for you

Florida's result turned on what the investigation was for and how that purpose was documented, not merely on the fact that a private investigator performed it. Insurance-purpose work could fall outside the taxable detective-service categories, but an indirect invoice needed to identify the carrier.

A customer's internal decision to bear its own losses was not enough to make it an insurance carrier. The TAA distinguished formal statutory self-insurance plans from ordinary self-insured businesses.

Common questions

Q: Were insurance-fraud investigations taxable? No. On the stated facts, they were insurance services within SIC 6411 rather than taxable SIC 7381 or 7382 services.

Q: Did the insurance company have to be billed directly? No, but an invoice to someone else had to include the insurance carrier's name.

Q: What if the invoice omitted the carrier's name? The Department said the insurance purpose could not be presumed and the service would be taxable.

Q: Did the same treatment apply to self-insured businesses? Generally no. Work for a business that simply self-insured was taxable, except where a formal self-insurance plan met section 624.031.

Citations and references

• Fla. Stat. § 212.05(1)(j)1.a. — tax on detective, burglar-protection, and other protection services in SIC 7381 and 7382
• Fla. Stat. § 624.02 — definition of insurance quoted by the Department
• Fla. Stat. § 624.031 — formal self-insurance plans
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-024

Original ruling text

SUMMARY

The statute which imposes a sales tax on investigative
services specifically states that the tax is imposed on
those activities falling under SIC code 7381 and 7382. If
an investigative service is performed for an insurance
company, it will be considered to be an activity falling
under SIC code 6411 and will not be subject to tax. The
insurance company does not have to be directly billed.
However, if the insurance company is not directly billed,
the invoice for the investigative services must include the
name of the insurance carrier.

Apr 15, 1998

Re: Technical Assistance Advisement 98A-024
Sales and Use Tax
Investigations for Insurance Companies
Section 212.05(1)(j)1.a., F.S.

Dear :

This is in response to your letter of January 29, 1998,
requesting a Technical Assistance Advisement (TAA) on behalf of
your client, XXX hereinafter "Investigator."

FACTS AND ISSUE

Your letter provides the following information about the
activities of your client.

[Investigator] provides private investigative services to
insurance companies in the State of Florida. These
investigative services are provided on a contract fee basis
and involve the collection of data as it relates to
possible insurance fraud by individuals or entities. This
information may be used by insurance companies to adjust or
settle certain insurance claims. The aforementioned

investigative services encompass the sole activity of
[Investigator] in the State of Florida.

Your request for a TAA concludes with the following
question.

Is [Investigator] liable for the collection and remittance
of sales tax on investigative services described above and
provided in the State of Florida?

APPLICABLE STATUTE

Section 212.05, F.S., provides in part:

(1) For the exercise of such privilege, a tax is levied
on...
(j)1.a. Detective, burglar protection, and other
protection services (SIC Industry Numbers 7381 and 7382).

DETERMINATION

Section 212.05(1)(j)1.a., F.S., which imposes the tax on
detective, burglar protection, and other protection services,
expressly states that the tax will apply to SIC (Standard
Industrial Classification) industry numbers 7381 (Detective,
Guard, and Armored Car Services) and 7382 (Security Systems
Services). In order to understand the scope of services which
are subject to tax, another SIC industry number must be
considered as well.

SIC industry number 6411, applies to insurance agents,
brokers, and service. Although this classification primarily
concerns insurance agents, the SIC manual states that "[t]his
industry also includes independent organizations concerned with
insurance services." The classification goes on to list
insurance claim adjusters, insurance information bureaus, and
insurance inspection and investigation services.

Again, the statutory section which imposes the tax on
investigative services imposes the tax based on those activities
found in SIC industry numbers 7381 and 7382. When Investigator

provides investigative services for insurance purposes it is
considered to be performing services within SIC industry number
6411. Accordingly, such services are not subject to tax.

The insurance company does not have to be directly billed;
however, the fact that the charge for investigative services is
for an insurance investigation must be established. Therefore,
when an insurance company is not directly billed for the
investigation, the invoice for the investigative services must
include the name of the insurance carrier. Without the name of
the insurance carrier, it cannot be presumed that the
investigation has been performed for insurance purposes, and the
service will be subject to tax.

SIC industry number 6411 makes no mention of, nor does it
recognize, self-insured businesses as insurance carriers.
Section 624.02, F.S., defines "insurance" as "a contract whereby
one undertakes to indemnify another or pay or allow a specified
amount or a determinable benefit upon determinable
contingencies." The fact that a business decides to be selfinsured for property losses or liabilities does not create a
contractual relationship nor does it make that business an
insurance carrier. Accordingly, except for formal selfinsurance plans as defined in s. 624.031, F.S., any
investigative services performed by Investigator for selfinsured businesses must fall within SIC industry number 7381 and
are subject to tax.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the request
for this advise as specified in Section 213.22, F.S. Our
response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or
administrative rule changes, or judicial interpretations of the
statutes or rules, upon which this advise is based, may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to

disclosure to the public under the conditions of Section 213.22,
F.S. Your name, address, and any other details which might lead
to identification of the taxpayer must be deleted by the
Department before disclosure. In an effort to protect the
confidentiality of such information, we request you notify the
undersigned in writing within 15 days of any deletions you wish
made to the request or response.

Sincerely,

Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution

ctrl# 32707